The game changes for Marico

As growth in its traditional stronghold stagnates, it is diving into business areas

where competition is cutthroat
Abhineet Kumar | Mumbai
May 28, 2013 Last Updated at 23:40 IST
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Harsh C Mariwala
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Harsh C Mariwala, the chairman of Mumbai-based consumer goods company Marico, has
change on his mind. For decades, he had been focussed on niche categories. His strategy
was to launch differentiated products in segments where there was no real competition.
And it paid off. Marico's hair oil brand, Parachute, and anti-lice treatment, Mediker, have
been leaders in the market for over 20 years.

However, now, he wants to introduce products in segments where competition is cutthroat.
The change has been forced by the growing market for grooming products such as hair gel,
deodorants and body lotion, and breakfast cereals such as oats, where multinationals rule
the roost. The move has also been prompted by increased competition and a plateauing
growth in Marico's traditional strongholds such as hair oil and cooking oil. For instance, its
edible oil brand, Saffola, is now facing aggressive competition from Adani Wilmar's cooking
oil brand, Fortune, which is being marketed as a heart-healthy product.

"The identification of portfolio has been the biggest shift at our end," says Mariwala.
"Clearly we realised that if we had to be on the right margin or get the right size, we had to
enter into categories which are on a growth path," he says.

In line with this new thinking, Marico has rolled out several products in the last two years.
The company entered the breakfast cereal segment with the launch of Saffola Oats, and
the body lotion market with Parachute Advansed. The nearly Rs 250-crore oats market in
India is currently dominated by PepsiCo's Quaker Oats. The category is growing at over 35
per cent annually with more and more urban Indian families taking to western breakfast
habits. Marico has been quick to make inroads. According to an Edelweiss Securities report,
it is the second largest player in the market with 13 to 14 per cent share by value.

Packaging it right
The success in cereals is to a large extent owing to insight into what the consumers
wanted. Similarly, stretching the Parachute brand to a body- lotion product has worked well
for Marico. In less than two years, Parachute Advansed has become the third largest player
in the segment with over 7 per cent share, after Hindustan Unilever's Vaseline and Ponds.

The shift in portfolio choice is evident in both its organic and inorganic growth efforts.
Earlier, the acquisitions were mostly in segments where Marico already had a leadership
position or in categories that were so niche that it didn't have any competition at all. For
instance, in January 2006, the company acquired Nihar brand of coconut oil from erstwhile
Hindustan Lever for Rs 240 crore. The idea was to bolster its already strong position in the
hair oil market. Over the years, Marico has developed Nihar
into a Rs 500- crore brand in terms of turnover from Rs 120
crore at the time of acquisition. However, with the acquisition
of the personal-care portfolio of the erstwhile Paras
Pharmaceutical from its owner, Reckitt Benckiser, last year for
about Rs 700 crore, it got into competitive categories such as
deodorants (Zatak), hair gel (Setwet) and hair serum (Livon).
"In the past we never competed with any multinational
companies; our choice of portfolio was such that it was
largely insulated from competition," says Mariwala. "Now
since we are getting into newer categories where competition is tough, organisation
responsiveness has to be different," he says. So the company has redesigned its overall
capability starting from product formulations, packaging development, manufacturing and
quality assurance to marketing investments.

As a first step, Marico has consolidated its domestic and international business under one
chief executive officer, Saugata Gupta. Till now the company's overseas business, which is
spread across 25 countries in Asia and Africa, was largely focussed on personal-care
products and the domestic business on hair care and health food. In 2012-13, the
international business and the domestic business reported Rs 1,007 crore and Rs 4,596
crore in turnover, respectively.

With the consolidation, the product portfolios of domestic and international businesses now
mirror each other. The move is likely to create more synergy in operations across the globe.

At the same time, Marico has decided to go slow on product launches. "We have realised
that when we are chasing too many things, it becomes a challenge given the threshold
level of investment and management bandwidth," says Gupta, chief executive officer. From
three to four new products in a year, Marico may now launch only one product a year and
grow it to a respectable size before moving on to the next product. The idea is to chase
fewer, but bigger bets. "Once you improve innovation capability, your confidence level of
getting into more competitive categories improves," adds Gupta.

The company's effort to seek growth from new categories is understandable. The market
for its exiting portfolio is stagnating. Its brands Parachute and Nihar together have a 57.6
per cent market share in the Rs 2,800-crore branded coconut oil. For some time now, it has
been driving business by pushing rigid packs instead of pouch packs. In terms of volume,
rigid packs grew 10 per cent in 2012-13, but the scope for more growth is limited.

Streamlining business
Its other major product, Saffola refined edible oil saw only 7 per cent growth in the last
financial year owing to shoppers cutting back on discretionary spending. Reducing the price
has gone only so far in boosting demand, while competition from Fortune has intensified.

Streamlining its business, therefore, has become even more important for the company.
Marico has decided to demerge its loss-making skin-care services business, Kaya, which
recorded a Rs 18.5-crore loss in 2012-13 on revenue of Rs 336 crore. Kaya will be
demerged and listed separately as Marico Kaya Enterprise to give it the focus it requires.

These structural shifts have been received well by investors. "We maintain our structurally
positive view on Marico given the steady growth outlook in the core portfolio and its
increasing ability to create additional growth in the categories of tomorrow such as skin
care, personal care and foods," said Nikhil Vora, analyst at IDFC Securities, in a recent note
after the company's annual result.

However, the success of its plans will depend on how well it is able to defend its market
share in its existing businesses. The company has cut back prices to boost demand for
Saffola, but making headway against Fortune won't be easy. Adani Wilmar claims Fortune is
healthier than Saffola, a claim that has been disputed by Marico.

Nov 27, 2013, 02.36 PM IST | Source: CNBC-TV18

Read more at: http://www.moneycontrol.com/news/business/devising-strategy-to-get-most-outrural-
demand-marico_997733.html?utm_source=ref_articleDevising strategy to get most out of rural demand:
Marico Marico strongly believes the worst is behind them as base correction of a slowdown that began in
Dec-Jan last year would start coming in. Rural growth will continue to grow faster than urban growth in
the next few quarters, says Marico CEO Saugata Gupta. 1 1 0Google +1 0 Bazaar 08:00 am FMCG will
continue to grow higher at a faster rate in rural than in urban over the next couple of quarters. SAUGATA
GUPTA CEO Marico The second quarter displayed a mixed set of numbers from companies in the fast
moving consumer goods sector which were battling a slowdown in urban spending. But FMCG major
Marico is confident of securing decent growth going ahead on the back of robust rural demand.
Speaking to CNBC-TV18, Saugata Gupta, CEO, said the company is counting on significant improvement
in volume growth over the next few quarters. The company is embarking on a strategy of direct
distribution and focussing on right cost structure and right price points for consumption to tick in. Also
Read: Positive on Dabur, Marico, Bata and Emami, says CIMB Below is the verbatim transcript of the
interview Q: Give us an idea of consumption trends and themes in India. On the volume front, Q2 results
for all fast moving consumer goods (FMCG) companies were mixed at best. Are those ghosts of
slowdown in urban discretionary spending still haunting you? Which segments and categories are
showing the impact most? A: The slowdown started last year when there was a slowdown in the
discretionary food items especially packaged foods. Then it flew down into top-end personal care, which
is discretionary and that slowdown is happening mostly in urban India. However, I believe strongly that
the worst is over because the base correction would start coming in sometime during December-January
because that was the time last year when the sector started slowing down. Q: We spoke about rural
demand as the next big growth driver a few months back because of the good monsoon but have the
strong monsoon already translated into higher rural spending? Is it playing out in the second half or is it a
bit of a dampener? A: There was no significant slowdown in rural India except in certain areas which had
significant drought last year, for example Maharashtra. We believe that in the next few months the rural
growth will continue to have a certain degree of momentum and one might not see significant upside
because there was no slowing down that happened. However the rural growth will continue to be robust
and I believe the sector will continue to grow higher at a faster rate in rural than in urban over the next
couple of quarters. Q: Now that rural and mid tier India is where the next wave companies will ride on,
how are consumer companies gearing to address this market? What is the change and strategy and how
are companies like yourself going to tap the potential which rural markets have to offer? A: Two things;
First, much more focus on direct distribution and therefore investments behind go-to-market in
technology, in people and other infrastructure. Second is in terms of portfolio. I think what has changed in
the last five-ten years is that earlier, ten years ago, they would have been looking at a different portfolio
for rural and urban but people wanting the same brand, the aspirations are the same. It is a question of
getting the right pack size, getting the right cost structure so that you develop a right price points for
consumption to tick in. Marico stock price On October 07, 2014, at 12:26 hrs Marico was quoting at Rs
306.65, down Rs 4.35, or 1.4 percent. The 52-week high of the share was Rs 317.50 and the 52-week
low was Rs 200.00. The company's trailing 12-month (TTM) EPS was at Rs 9.05 per share as per the
quarter ended June 2014. The stock's price-to-earnings (P/E) ratio was 33.88. The latest book value of
the company is Rs 30.60 per share. At current value, the price-to-book value of the company is 10.02.

Read more at: http://www.moneycontrol.com/news/business/devising-strategy-to-get-most-outrural-
demand-marico_997733.html?utm_source=ref_article




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FEATURES/BOARDROOM | Aug 7, 2013 | 17562 views
Marico's Unique Paras
Strategy
by Samar Srivastava
Marico learns to juggle old and new businesses after acquiring Parass
personal care brands


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Image: Vikas Khot
A strategic fit: Saugata Gupta, CEO, Marico, says, We wanted to enter categories that create
tailwinds
W
hen Marico decided to try on a new hat, it also committed itself to a different,
more vibrant, personality. Juggling personas was never going to be easy but
heres proof that the company known for its steadiness, manifested in brands
like Saffola and Parachute, is ready to step away from its long-standing staid
avatar.

Consider this advertisement. Its narrative goes like this: Two young television
jockeys are shown complaining about the quality of participants at a talent
hunt. Pata nahi kahaan se aa jaate hain. Unko maloom nahi, yeh talent hunt
hai, unki gaon ki nautanki nahi [Dont know where they land up from. They
dont know, this is a talent hunt, not a village nautanki], says one
dismissively. On cue, the maligned participant pulls out a can of Zatak
deodorant; the cap flies across the room and lodges itself in the jockeys mouth
rendering him unable to speak while the participant sprays himself. Whos the
cool one now? the advertisement seems to ask. The jockeys are humbled and
the underdog prevails.

The tone of this campaign is in-your-face, suggesting a departure from
Maricos traditional approachremember the Parachute hair oil commercials?
Significantly, this is a sign of the leap of faith Marico is taking as it digests the
acquisition of Paras Pharmaceuticals personal care brands. It completed the
Rs 760-crore purchase from Reckitt Benckiser (the UK consumer goods giant
had earlier acquired those brands from Paras) last July and has been on a
learning curve since then.

Winds of change
Prompted by the sluggishness in its core businesses of hair oil and cooking oil,
Marico had, a few years ago, taken a strategic call to tap new categories. We
wanted to enter categories that create tailwinds, says Saugata Gupta, CEO,
Marico. He means businesses that are poised to grow faster given that they
cater to the 250 million Indians under the age of 35.

Subsequently, in 2010, it launched breakfast cereals under the Saffola brand
and has since garnered an impressed 14 percent share in the category behind
market leader Quaker Oats.

Personal care presented an opportunity with significantly better growth rates.
In late 2011, when Reckitt Benckiserwhich had bought the Set Wet hair gel,
Zatak deodorant and Livon hair serum brands from Parasput them up for
sale, Marico was quick to enter the competitive bidding process. Simply put,
if we could not acquire this business, we would have had to build it, says
Sameer Sathpathy, chief marketing officer.

Marico has already notched impressive gains in these categories. Its success
mantra: Learning to do business in a new way for an audience that is more
aspirational, even fickle.

Why personal care?
In 1962, when Harsh Mariwala joined the family business at Bombay Oil
Industries, he had no clue that there would come a time when he would have
to look outside its staple hair oil business for growth. Still, in the early 2000s,
the company found itself in that position and ventured into the cooking oil
business with Saffola, a brand built on the promise of lower cholesterol. Sales
soared as health-consciousness rose in urban India. Between 2000 and 2010,
the companys market capitalisation increased more than 10-fold, from Rs
800 crore to Rs 13,000 crore.

But by the end of the decade, Marico found itself in the search for more
options in areas that could be considered businesses of the futurethat is,
those that take advantage of Indias young demographic. Breakfast cereals, as
mentioned earlier, presented one such opportunity, while personal care
emerged as another. We needed a portfolio that was in line with future trends
and left a lot of headroom for growth, said Mariwala.

Personal care brands had been benefitting from the surge in personal
grooming in India. They boasted growth rates of 20-25 percent, far higher
than the seven percent seen in Maricos core categories. This was identified as
an attractive category.

The choice was build versus buy. Setting up the business from scratch would
have taken three to five years and come at significant cost. A national
advertising campaign would set the company back by Rs 25-30 crore. Add to
that, the cost of strengthening distribution. Contrast this to an easier, stable
entry that the Paras brands would provide. It was a no-brainer.

But the acquisition had its own set of challenges. Reckitt Benckiser had
stopped investing in the brands, given its disinterest in retaining them.
Consequently, they had lost market share as well as recall. While Maricos
primary task was to fuel growth, the other big job was integrating a smaller
but more strategic business into the company. Integration issues have been
known to adversely affect brands. It knew it would have to tread carefully.


Read more: http://forbesindia.com/article/boardroom/maricos-unique-
paras-strategy/35763/1#ixzz3FRNVupG2